Purpose for Appraisals in Utah County Shifted in 2009

Industrial property for lease in American Fork. Photo courtesy NAI Utah.

By Kelly Lux

Real Estate News Utah Editor

OREM -- The number of commercial properties appraised in Utah by Free and Associates during 2009 was slightly less than those appraised in 2008, according to Stan Craft, vice president of Free and Associates.

Craft, who gave a commercial market review Wednesday for the Utah County Association of Realtors, said the decline was minimal, from 328 in 2008 to 303 in 2009. In Utah County, the majority of appraised property was in land, with 41 properties being appraised. Free and Associates also appraised 32 office properties, 17 industrial properties, 10 retail properties, four subdivisions, 10 restaurant properties and 27 other properties in Utah County, Craft said.

Although the number of appraisals only saw a small downward shift during the year, Craft said the purpose for having an appraisal shifted more dramatically. Free and Associates did fewer appraisals on new construction, seeing a 10 percent decline from 2008 to 2009. The company also saw fewer appraisals on sales. Appraisals have increased in Utah County in asset disposition, tax appeals and foreclosures.

Free and Associates did a total of 27 valuations during 2009. Five of those valuations increased and 22 declined in value. The overall average on valuations was a 10 percent decline.

“Utah traditionally lags the rest of the country going into something and going out,” said Ray Walker of CB Richard Ellis, who gave a financial update on Wednesday. “And it doesn’t get as deep or as high. But yes. We have seen value declines.”

Sale comparables, lease rates, vacancies, concessions and cap rates were all factors that influenced appraised values, Craft said.

Capitalization rates increased from 2008 to 2009. During the second half of 2009, capitalization rates were at 8.44 percent, up from 7.62 percent in 2008.

“This trend is pretty consistent wherever we look,” Craft said.

Appraisal values for office rent rates were down from $15.09 in 4Q 2008 to $13.64 in 4Q 2009. Office vacancies increased from 9.8 percent in 4Q 2008 to 12.3 percent in 4Q 2009.

Development is still occurring in Pleasant Grove near Interstate 15, Craft said. Office lease rates around Pleasant Grove are the strongest Craft has seen in Utah County, although some desperate owners in the area have dropped their prices significantly in order to sell.

“Even at the low prices, it has been hard to get movement,” Craft said.

But money isn’t the reason behind slow movement, said Walker.

“There is plenty of money at the right price,” Walker said.

Lenders are looking at real values and real tenants, Walker said. But most of all, Walker said, lenders are looking at debt coverage. They are scrutinizing tenants, looking at financials, analyzing cash flow and reviewing tenant rosters.